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5 Steps to Build Your Credit

A hand passing a credit card,
Photo by Pixabay on Pexels.

Building credit in your 20s can seem like an impossible task, but it’s easier than you think! Here are five steps to build your credit in your 20s that don’t involve loans or credit cards. Your credit score will thank you later!

Open a Credit Card

Opening a credit card can be an important step towards building credit, as long as you’re responsible with it. Be sure to read all of your contract agreements before signing; most cards charge annual fees and interest, so make sure you know what you’re getting into (and how much it will cost) before swiping that card. If you pay off your balance on time each month and never use your credit limit, it will help boost your score over time.

Use it Regularly

To build credit, you should use your credit card regularly and then pay it off on time. However, it’s important not to use your card so much that you have trouble paying it back. Otherwise, your credit score could take a hit.  The easiest way to use your card is by using it as a payment option for regular bills like utilities. If you use your credit card for things you would already have to spend money on, and pay it back on time, it’s a sure-fire way to safely build credit.

Don’t Spend More Than You Can Afford

Many young adults have very little credit history, which means it’s tough for them to get approved for loans or credit cards. In order to build a good credit score, don’t rack up any debts you can’t afford. Use your card wisely. If you don’t already have the money in the bank, don’t rely on your card to supplement that income. You should also check your credit report from time to time.

Keep Your Balances Low

It’s important not to carry a balance from month-to-month, and instead pay your credit card bill in full. Keeping your balances low increases your available credit line, which helps build your credit score over time. Keep an eye on how much of your available credit you are using, and keep it under 30% at all times. This will help your credit score go up.

Find Out What Lenders Look For

Lenders want to see your score, and they want to see proof that you’re using credit wisely. In order for them to do so, you need a good credit history. Having high credit-to-debt ratios is what most lenders are looking for. This can be easily achieved by keeping accounts open and making payments on time. Paying off debt will also help improve your overall score.

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